OCCUPATIONS CODE CHAPTER 953. REGULATION OF FOR-PROFIT LEGAL ...

OCCUPATIONS CODE CHAPTER 953. REGULATION OF FOR-PROFIT LEGAL

SERVICE CONTRACT COMPANIES

OCCUPATIONS CODE

TITLE 5. REGULATION OF FINANCIAL AND LEGAL SERVICES

SUBTITLE B. LEGAL SERVICES

CHAPTER 953. REGULATION OF FOR-PROFIT LEGAL SERVICE CONTRACT

COMPANIES

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 953.001. DEFINITIONS. In this chapter:

(1) "Administrator" means the person responsible for

the administration of a legal service contract. The term

includes a person responsible for any filing required by this

chapter.

(2) "Company" means a person who:

(A) is contractually obligated to a legal service

contract holder under the terms of a legal service contract;

(B) enters into a contract with a contracting

attorney to provide or obtain covered legal services for a legal

service contract holder; and

(C) operates as a for-profit legal service

contract company.

(3) "Contracting attorney" means an attorney who has

entered into a contract with a company to provide or obtain

covered legal services for a legal service contract holder.

(4) "Department" means the Texas Department of

Licensing and Regulation.

(5) "Executive director" means the executive director

of the Texas Department of Licensing and Regulation or the

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executive director's designee.

(6) "Financial security" means a surety bond, a

certificate of deposit, or any other item approved by the

executive director.

(7) "Legal service contract" means an agreement:

(A) that is entered into for a separately stated

consideration; and

(B) under which the company obtains legal

services for a legal service contract holder through a

contracting attorney.

(8) "Legal service contract holder" means the person

who purchases or otherwise holds a legal service contract or who

is covered under a group legal service contract.

(9) "Person" means an individual or a partnership,

company, corporation, association, or other private group.

(10) "Sales representative" means a person who sells

or solicits legal service contracts to a person on behalf of a

company.

Added by Acts 2003, 78th Leg., ch. 1181, Sec. 1, eff. Sept. 1,

2003.

Sec. 953.002. EXEMPTIONS. This chapter does not apply to:

(1) a nonprofit legal services corporation under

Chapter 961, Insurance Code;

(2) an automobile club supplying services under

Chapter 722, Transportation Code;

(3) a prepaid legal services program under Chapter

951;

(4) a lawyer referral service under Chapter 952;

(5) a retainer contract between an attorney and a

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client, and similar contracts made with a group of clients

involved in the same or closely related legal matters; or

(6) a contingency fee contract between an attorney and

a client.


2003.

Sec. 953.003. EXEMPTIONS FROM CERTAIN OTHER LAWS. The acts

of marketing, selling, offering for sale, issuing, making,

proposing to make, and administering a legal service contract

that is regulated by this chapter are exempt from the Insurance

Code and other laws of this state regulating the business of

insurance.


2003.

Sec. 953.004. PREPAID LEGAL SERVICE CONTRACT PROGRAMS.

(a) An insurer who issues or renews prepaid legal service

contracts under Article 5.13-1, Insurance Code, shall notify the

commissioner of insurance in writing not later than the 60th day

before transferring regulation of the insurer's legal service

contracts from the Texas Department of Insurance to the Texas

Department of Licensing and Regulation. An insurer that complies

with this section is exempt from the requirements of:

(1) Articles 21.49-2, 21.49-2A, 21.49-2B, 21.49-2D,

and 21.49-2E, Insurance Code; and

(2) Chapter 827, Insurance Code.

(a) An insurer who issues or renews prepaid legal service

contracts under Article 5.13-1, Insurance Code, shall notify the

commissioner of insurance in writing not later than the 60th day

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before transferring regulation of the insurer's legal service

contracts from the Texas Department of Insurance to the Texas

Department of Licensing and Regulation. An insurer that complies

with this section is exempt from the requirements of Chapters 551

and 827, Insurance Code.

(b) The exemptions described by Subsection (a) begin on the

date the commissioner receives the notice under Subsection (a)

and apply until the insurer registers with the department as

required by Section 953.052.


2003.

Amended by:

Acts 2005, 79th Leg., Ch. 728, Sec. 11.149, eff. September

1, 2005.

Sec. 953.005. POWERS AND DUTIES OF EXECUTIVE DIRECTOR.

(a) The executive director may investigate a company,

administrator, sales representative, or other person as necessary

to enforce this chapter and protect legal service contract

holders in this state.

(b) On request of the executive director, a company or

sales representative shall make the records relevant to the

regulation of legal service contracts in this state available to

the executive director as necessary to enable the executive

director to reasonably determine compliance with this chapter.

(c) After contacting the company that has contracted with

the contracting attorney, the executive director may refer a

complaint received by the department concerning the performance

of a contracting attorney to:

(1) the State Bar of Texas;

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(2) the appropriate licensing agency of another

jurisdiction, if applicable; or

(3) any person designated by law to receive complaints

from the public concerning the performance of an attorney.

(d) The executive director may adopt rules as necessary to

implement this chapter.


2003.

SUBCHAPTER B. REGISTRATION REQUIREMENTS

Sec. 953.051. REGISTRATION REQUIRED. (a) A person may not

operate as a company or sales representative of legal service

contracts sold in this state unless the person is registered with

the department. A company's contract may only be sold by a sales

representative who is registered with the department.

(b) A person who collects commissions for the sale of legal

service contracts but who does not actively sell or solicit legal

service contracts is not required to register under this

subchapter.


2003.

Sec. 953.052. APPLICATION FOR REGISTRATION. (a) An

applicant for registration must submit an application to the

department. The application must be in the form prescribed by

the executive director.

(b) An application for registration as a company must

include evidence satisfactory to the executive director of

compliance with the applicable financial security requirements

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prescribed by Subchapter C.

(c) An application for registration as a sales

representative must include a list of the companies for which the

sales representative will sell or solicit legal service

contracts.


2003.

Sec. 953.053. FEES. (a) The executive director shall

develop a tiered fee schedule of annual registration fees under

which a company's registration fee is based on the number of

legal service contracts the company sold in this state during the

preceding 12-month period. The executive director shall set the

amounts of the fees required by this subsection to cover the

costs of administering this chapter.

(b) In addition to the annual registration fee required by

Subsection (a), the executive director shall annually collect

from each company a fee equal to the difference between an amount

equal to 1.7 percent of the amount a company collects for legal

service contracts sold by the company in this state in the

current year and the amount the company paid to the state in

franchise taxes in the same year. The executive director shall

establish a schedule and procedure for collecting this fee.

(c) To be registered, a company must pay the appropriate

fees required by this section.


2003.

Sec. 953.054. INFORMATION CONCERNING NUMBER OF LEGAL

SERVICE CONTRACTS SOLD. Information concerning the number of

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legal service contracts sold by a company that is submitted under

Section 953.053 is a trade secret to which Section 552.110,

Government Code, applies.


2003.

Sec. 953.055. ADDITIONAL REQUIREMENTS FOR SALES

REPRESENTATIVES. (a) The executive director may deny an

application from a sales representative who:

(1) made a material misrepresentation or fraudulent

statement in the application;

(2) has had a license revoked under the Insurance

Code;

(3) has had a license suspended or revoked under

Section 82.062, Government Code; or

(4) fails to pay the fee required under Subsection

(b).

(b) Each registered sales representative shall pay an

annual registration fee in the amount set by the executive

director to cover the costs of administering this chapter.


2003.

Sec. 953.056. MODIFICATION OF REGISTRATION INFORMATION.

The executive director may adopt rules regarding the procedures

and fees a company or sales representative must follow and pay

when requesting a modification to the company's or sales

representative's registration information that is on file with

the department.


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2003.

Sec. 953.057. RENEWAL OF REGISTRATION. The executive

director shall adopt rules for the renewal of a company's or

sales representative's registration, including a rule that

addresses late renewals.


2003.

SUBCHAPTER C. FINANCIAL SECURITY REQUIREMENTS FOR LEGAL SERVICE

CONTRACT COMPANIES

Sec. 953.101. FINANCIAL SECURITY REQUIREMENTS. (a) To

ensure the faithful performance of a company's obligations to its

legal service contract holders, each company must deposit and

maintain a form of financial security with the executive

director. The financial security deposited with the director

must maintain at all times the following market values:

(1) a company generating $300,000 or less in annual

gross revenue in this state from the sale of legal service

contracts in the preceding year shall deposit at least $50,000

with the executive director;

(2) a company generating more than $300,000 but less

than $750,000 in annual gross revenue in this state from the sale

of legal service contracts in the preceding year shall deposit at

least $75,000 with the executive director; and

(3) a company generating $750,000 or more in annual

gross revenue in this state from the sale of legal service

contracts in the preceding year shall deposit at least $100,000

with the executive director.

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(b) For purposes of Subsection (a), if a company that had

no gross revenue in this state from the sale of legal service

contracts in the preceding year previously generated revenue from

the sale of prepaid legal service contracts under Article 5.13-1,

Insurance Code, the company shall deposit an amount of financial

security based on the revenue generated from the sale of prepaid

legal service contracts under the Insurance Code in the preceding

year.

(c) The department is responsible for the safeguarding of

financial security deposited with the executive director under

this section. Financial security is not subject to taxation and

is to be used exclusively to guarantee the company's performance

of its obligations to its legal service contract holders.

(d) The executive director may order an increase in the

amount of financial security required of a company under this

section if the executive director finds that there has been a

substantial change in the company, including an increase in the

amount of fees the company is charging consumers or an increase

in the company's annual gross revenue.

(e) Not later than the 30th day after the date the

executive director orders a financial security increase under

Subsection (d), the company may request a hearing on the issue.

The executive director shall hold a hearing not later than the

30th day after the date a company requests a hearing.

(f) Failure of a company to meet the financial security

requirements in this section not later than the 30th day after

the date the executive director issues a final decision in the

event of a hearing or the 30th day after the date the period for

submitting a request for a hearing expires constitutes a ground

for revocation of the company's registration.

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2003.

Sec. 953.102. REPLACEMENT OR RENEWAL OF FINANCIAL

SECURITY. (a) If a company's financial security under Section

953.101 is issued or written for a specified term, not later than

the 90th day before the date the term expires, the company shall:

(1) replace the financial security; or

(2) notify the executive director of the company's

intention to renew the financial security.

(b) If, not later than the 60th day before the date the

term of a company's financial security expires, the executive

director does not receive satisfactory notification of a

company's renewal or replacement of the financial security, the

executive director may draw on the company's financial security

to the extent necessary to ensure that the company's obligations

to its legal service contract holders are met in accordance with

this chapter.


2003.

Sec. 953.103. DURATION OF DEPOSIT OF FINANCIAL SECURITY.

The executive director shall maintain a company's financial

security deposit so long as the company continues to do business

in this state. When a company ceases to do business in this

state and furnishes the executive director with satisfactory

proof that the company has discharged or otherwise adequately met

all obligations to its legal service contract holders in this

state, the executive director shall release the deposited

financial security to the company.

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2003.

Sec. 953.104. SUIT ON FINANCIAL SECURITY. (a) The state,

on behalf of a legal service contract holder injured because of a

company's violation of this chapter, may bring a suit for payment

from the company's financial security deposit held by the

executive director.

(b) The state is the only party that may bring suit for

payment from a company's financial security deposit held by the

executive director. This chapter does not create a private right

of action.

(c) The state may only seek damages for the cost of the

legal services the company failed to provide to a legal service

contract holder under the terms of the legal service contract.

(d) The court shall determine the amount the executive

director shall pay the consumer from the company's financial

security deposit held by the executive director.


2003.

Sec. 953.105. ADDITIONAL FINANCIAL SECURITY REQUIREMENTS.

(a) The executive director shall annually review:

(1) the audited financial statements of a company;

and

(2) a certified statement describing the company's

reserves, if any.

(b) The statement described by Subsection (a)(2) must be

made by an actuary who is a member in good standing of the

American Academy of Actuaries.

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(c) After reviewing the information described by Subsection

(a), the executive director may require a company to maintain

certain reserves in order for the company to obtain or maintain

the company's registration.


2003.

SUBCHAPTER D. PRACTICE BY LEGAL SERVICE CONTRACT COMPANIES

Sec. 953.151. COMPANY REQUIREMENTS. (a) A company may not

sell, offer for sale, or issue a legal service contract in this

state unless the company gives the legal service contract holder:

(1) a receipt for, or other written evidence of, the

purchase of the contract; and

(2) a copy of the legal service contract.

(b) A company shall perform the services as stated in the

legal service contract.


2003.

Sec. 953.152. GROUP LEGAL SERVICE CONTRACTS. A company may

issue group legal service contracts. The company shall provide a

legal service contract holder who obtains a group contract with a

document that describes the company's services and complies with

the requirements of this chapter.


2003.

Sec. 953.153. CONTRACTING ATTORNEY REQUIREMENTS. A

contracting attorney must:

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(1) be licensed in the jurisdiction in which the legal

services are performed;

(2) be in good standing with the entity that licenses

attorneys in that jurisdiction; and

(3) maintain professional liability and errors and

omissions insurance with minimum annual limits of $100,000 for

each occurrence and $300,000 in the aggregate.


2003.

Sec. 953.154. COMPANY INTERFERENCE WITH ATTORNEY'S DUTIES

PROHIBITED. A company may not interfere with the attorney-client

relationship or with the contracting attorney's independent

exercise of professional judgment.


2003.

Sec. 953.155. COMPANY RECORDS. (a) A company shall

maintain accurate accounts, books, and other records regarding

transactions regulated under this chapter. The company's records

must include:

(1) a copy of each unique form of legal service

contract filed with the executive director under Section 953.156;

(2) the name and address of each legal service

contract holder;

(3) a list of the sales representatives authorized by

the company to market, sell, or offer to sell the company's legal

service contracts;

(4) a copy of each contract entered into between the

company and a contracting attorney; and

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(5) a list of complaints the company has received from

legal service contract holders, including the name of the sales

representative involved in the transaction leading to the

complaint.

(b) The records required by this section may be maintained

in an electronic medium or through other recordkeeping

technology. If a record is not in a hard copy, the company must

be able to reformat the record into a legible hard copy at the

request of the executive director.

(c) Except as provided by Subsection (d), a company shall

retain the records required by this section until at least the

second anniversary of the termination date of the specified

period of coverage under the legal service contract.

(d) A company that discontinues business in this state

shall retain its records until the company furnishes the

executive director with proof satisfactory to the executive

director that the company has discharged all obligations to legal

service contract holders in this state.


2003.

Sec. 953.156. FORM OF LEGAL SERVICE CONTRACT AND REQUIRED

DISCLOSURES. (a) A legal service contract must be filed with

the executive director before it is marketed, sold, offered for

sale, administered, or issued in this state. Any subsequent

endorsement or attachment to the contract must also be filed with

the executive director before the endorsement or attachment is

delivered to legal service contract holders.

(b) A legal service contract marketed, sold, offered for

sale, administered, or issued in this state must:

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(1) be written, printed, or typed in clear,

understandable language that is easy to read;

(2) include the name and full address of the company;

(3) include the purchase price of the contract and the

terms under which the contract is sold;

(4) include the terms and restrictions governing

cancellation of the contract by the company or the legal service

contract holder;

(5) identify:

(A) any administrator, if the administrator is

not the company;

(B) the sales representative; and

(C) the name of the legal service contract

holder;

(6) include the amount of any deductible or copayment;

(7) specify the legal services and other benefits to

be provided under the contract, and any limitation, exception, or

exclusion;

(8) specify the legal services, if any, for which the

company will provide reimbursement and the amount of that

reimbursement;

(9) specify any restriction governing the

transferability of the contract or the assignment of benefits;

(10) include the duties of the legal service contract

holder;

(11) include the contact information for the

department, including the department's toll-free number and

electronic mail address, as well as a statement that the

department regulates the company and the company's sales

representatives;

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(12) explain the method to be used in resolving the

legal service contract holder's complaints and grievances;

(13) explain how legal services may be obtained under

the legal service contract;

(14) include a provision stating that no change in the

contract is valid until the change has been approved by an

executive officer of the company and unless the approval is

endorsed or attached to the contract;

(15) include any eligibility and effective date

requirements, including a definition of eligible dependents and

the effective date of their coverage;

(16) include the conditions under which coverage will

terminate;

(17) explain any subrogation arrangements;

(18) contain a payment provision that provides for a

grace period of at least 31 days;

(19) include conditions under which contract rates may

be modified; and

(20) include any other items required by the executive

director as determined by rule.


2003.

Sec. 953.157. TERMINATING A LEGAL SERVICE CONTRACT. A

legal service contract holder may terminate the legal service

contract if the legal service contract holder provides the

company with written notice of the legal service contract

holder's intention of terminating the contract not later than the

seventh day after the date the legal service contract holder

receives the contract.

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2003.

Sec. 953.158. VOIDING A LEGAL SERVICE CONTRACT. (a) If a

legal service contract holder terminates a legal service contract

in accordance with Section 953.157 and the holder has not sought

legal services under the contract before the contract is

terminated, the contract is void.

(b) A legal service contract holder may void the legal

service contract at a later time as provided by the contract.

(c) If a legal service contract is voided, the company

shall refund to the legal service contract holder or credit to

the account of the legal service contract holder the full

purchase price of the contract. If the company does not pay the

refund or credit the legal service contract holder's account

before the 46th day after the date the contract is voided, the

company is liable to the legal service contract holder for a

penalty each month an amount remains outstanding. The monthly

penalty may not exceed 10 percent of the amount outstanding.

(d) The right to void a legal service contract is not

transferable.


2003.

Sec. 953.159. CANCELING A LEGAL SERVICE CONTRACT. (a) A

company may cancel a legal service contract by mailing a written

notice of cancellation to the legal service contract holder at

the legal service contract holder's last known address according

to the records of the company. The company must mail the notice

before the fifth day preceding the effective date of the

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cancellation. The notice must state the effective date of the

cancellation and the reason for the cancellation.

(b) The company is not required to provide prior notice of

cancellation if the legal service contract is canceled because

of:

(1) nonpayment of the consideration for the contract;

(2) a material misrepresentation by the legal service

contract holder to the company;

(3) a substantial breach of a duty by the legal

service contract holder; or

(4) cancellation of the contract by the legal service

contract holder.


2003.

Sec. 953.160. LIMITATIONS ON COMPANY NAME. (a) A company

may not use a name that:

(1) includes "insurance," "casualty," "surety," or

"mutual" or any other word descriptive of the insurance,

casualty, or surety business; or

(2) is deceptively similar to the name or description

of an insurance or surety corporation or to the name of any other

company.

(b) This section does not apply to a company that, before

September 1, 2003, included a word prohibited under this section

in its name. A company described by this subsection must include

in each legal service contract a statement substantially similar

to the following: "This agreement is not an insurance contract."


2003.

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Sec. 953.161. MISLEADING STATEMENTS PROHIBITED. A company,

a sales representative, or a representative of a sales

representative may not, in the company's contracts or marketing:

(1) make, permit, or cause to be made any false or

misleading statement; or

(2) deliberately omit a material statement if the

omission would be considered misleading.


2003.

Sec. 953.162. APPOINTMENT AND RESPONSIBILITIES OF

ADMINISTRATOR. (a) A company may appoint an administrator or

designate a person to be responsible for:

(1) all or any part of the administration or sale of

legal service contracts; and

(2) compliance with this chapter.

(b) The executive director may adopt rules regarding the

registration of an administrator with the department.


2003.

SUBCHAPTER E. DISCIPLINARY ACTION

Sec. 953.201. DISCIPLINARY ACTION. On a finding that a

ground for disciplinary action exists under this chapter, the

executive director may impose an administrative sanction,

including any administrative penalty, as provided by Chapter 51.


2003.

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Sec. 953.202. EMERGENCY CEASE AND DESIST ORDER. (a) The

executive director may issue an emergency cease and desist order

to enforce this chapter if the executive director determines that

an emergency exists requiring immediate action to protect the

public.

(b) The executive director may issue the emergency cease

and desist order without notice and hearing if the executive

director determines that an immediate issuance is necessary under

the circumstances.

(c) The executive director shall set the time and place for

a hearing to affirm, modify, or set aside an emergency cease and

desist order that was issued without a hearing.


2003.

Sec. 953.203. INJUNCTIVE RELIEF; CIVIL PENALTY. (a) The

executive director may institute an action against a company or

sales representative for injunctive relief under Section 51.352

to restrain a violation or a threatened violation of this chapter

or an order issued or rule adopted under this chapter.

(b) In addition to the injunctive relief provided by

Subsection (a), the executive director may institute an action

for a civil penalty as provided by Section 51.352.


2003.

Sec. 953.204. ADMINISTRATIVE PROCEDURE. Sections 51.310,

51.353, and 51.354 apply to a disciplinary action taken under

this chapter.

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2003.

Sec. 953.205. APPEAL. A person affected by a ruling,

order, decision, or other action of the executive director or

department may appeal by filing a petition in a district court in

Travis County.


2003.

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